Speaking of commodities in general, there are resons why commodities can be less risky than stocks. 1) information on a single compnay can be falsified alot easier than information on a commodity. All it takes is a couple unscrupulous guys on the board to publish misleading/false financial results. Trying to falsify data on a commodity would generally imply a very large scale plot... and the guys issuing data on commodities are a hell of alot more neutral than the directors of company issuing its company's information. 2) A company can go bankrupt and its stock can fall to zero. Have you ever seen a commodity fall to zero ? No, it can't happen because a commodity will never be free as a price of zero would imply. 3) If you are thinking of leverage and its danger, one can use as litle leverage as one wants depending on the size of their account. If you have more capital in the acount than the notional size of the contract, you are not leveraged. 4) Consumable commodities tend to be alot more simple to analyse than stocks from a findamental point of view. A consumable commodity has a productions cost, storage cost, a certain quanity of supply, and a certain quantity of demand. Also, consumable commodities are actualy needed by people. Stocks, on the other hand, are far more difficult to price as there are so many more factors to consider (earnings, debt, competition, dividends, book value, cash flow ...etc). This leads to very different techniques of analysing stocks and quite likely partially explains the wild price swings in stocks (stocks can be far more volatile than even nat gas). Also, stocks can be dumped in a day as nobody actualy needs stocks. You can do fine for a few months without stocks in your portfolio, can people cary on normaly without commodities ? Don't get me wrong, I own some stocks myself, but I am alot more confident in making money in commodities than in stocks.
good comments. no earnings surprises on commodities -- only storage reports, crop reports, and weekly summaries on demand. Its the purest form of trading there is.
Quite pure indeed. However, if I may venture to say, FX is truly the purest market of all. Definitely my favourite.
Oct. 16 (Bloomberg) -- Natural gas rose the most since July in New York as forecasters predicted cooler weather in the Midwest will lift consumption of the furnace fuel. http://www.bloomberg.com/apps/news?pid=20601087&sid=aPjAxeA7TF0k&refer=worldwide_news Nice way to start off the week
I truly don't get it. 1 Bloomberg article and a cold arctic front and the market goes wild. Nov is 6.55, up .89. Dec is 7.92 up .57. There is absolutely no threat to the high inventory situation right now. Furthermore, bullish winter weather should result in the Nov/Dec spread widening, not decreasing. Looks like a short covering day all day. I think all the long term shorts are out as well as the people who were shorting last week's rise. I just don't see any support for Nov, honestly. Dec has potential for longs, I think. Anyone want to be bold and say in 2 weeks, Nov will be at 5.00-5.50? Thats my call. Spot prices were in the low 4.x range just 2 weeks before expiration, on Friday. Spot prices today at Henry are 5.10, still relatively low. Why on earth would a commercial buyer buy at 6.54 for delivery 10 days out when he could take the risk at cash can move up a whole $1.44 and do better? Thats why I see no support at these prices. ParisJOM: congrats on the foresight in your trades - you are spot on. Did you cash out today? whats your outlook for the next 2 weeks?
I am still not sure there is any "real correlation" between nat gas and crude oil but in the latest "BLOOMBERG MARKETS" magazine one of the most successful floor traders ( he is sometimes interviewed on CNBC ) claimed to have gone long NAT GAS and short CRUDE this summer ... and prob made millions ... of course this is before the 2nd HF blow up so maybe this trade would have gotten crushed or not resulted in much of a gain if done at a different time
There is correlation to the extent that $60 oil supports nat gas above the $5 price level. Thats about it, for now at least.
6:1 is the energy btu content ratio. So $60 oil = $10 nat gas ideally. But most people can't readily switch between ng and oil for home heating, so its not a ratio that works well lately. inventory, demand, traders' whims, and weather controls the price. But oil naturally offers price support. This time a year, bullish (at this moment) outlook for oil is about all nat gas has going for it.